Winkle v. Grand Nat. Bank

• Decision Date: 21 April 1980
• Docket Number: No. 78-296,78-296
• Parties: William Roger WINKLE et ux., Appellants, v. GRAND NATIONAL BANK, Appellee-Cross Appellant.
• Court: Arkansas Supreme Court

Page 559

601 S.W.2d 559

267 Ark. 123

William Roger WINKLE et ux., Appellants, v. GRAND NATIONAL BANK, Appellee-Cross Appellant.

No. 78-296.

Supreme Court of Arkansas.

April 21, 1980.

William Roger Winkle, pro se.

Robert S. Hargraves, Hot Springs, for appellee-cross appellant.

FOGLEMAN, Chief Justice.

This action was commenced by appellee and cross-appellant Grand National Bank against appellants on two promissory notes executed by them on November 5, 1975. They were: a short term ninety-day in the principal amount of $15,000, with interest at ten percent, renewable at maturity with an eight percent reduction in principal, and a note for the principal sum of $22,000 with ten percent interest to be paid over ten years in one hundred twenty equal installments. Appellee's loan clerk prepared the notes, a deed of trust, a security agreement and a financing statement using the total proceeds of the two notes as the total amount financed and excluding any charges for credit life insurance.

Several errors were made in the preparation of the documents. The deed of trust and the security agreement prepared by the loan clerk referred to only one promissory note for $37,000 and were therefore incorrectly drawn, a fact overlooked by both parties at the time. At the closing, appellants requested credit life insurance on both promissory notes. This required an additional advance of funds, but appellee's loan officer, instead of preparing new documents, tried to make corrections on the face of the notes. These corrections were initialed by Roger Winkle. The amount of the monthly payment in the body of the installment note, however, was not changed to correspond to the adjustment made for the credit life insurance until the discrepancy was discovered at the close of appellee's business day. The total amount recited as due in the body of the installment note was not corrected. Soon after the notes were executed, appellants received a payment book showing payments which had been increased to cover the amount of the premium for the credit life insurance as a part of the principal. Appellant made these payments for approximately one year in the amount shown in the coupon book, rather than in the amount of the lower installment payments indicated in the note.

The Winkles subsequently defaulted on both promissory notes and, on May 5, 1977 Appellants rely upon five points for reversal:

the bank brought this suit to collect the balance due on them. The bank, having discovered the errors in the documents, sought reformation of these instruments as well as judgment for the balance due on both notes and foreclosure of the security instruments. Appellants' answer was a general denial but they filed a counterclaim and an amendment thereto, alleging that appellee had violated the Truth in Lending Act and that the loan was usurious. They also sought to recover actual and punitive damages, alleging that the bank's officers had willfully, maliciously, and intentionally misled them in the transaction. The chancellor found that: the Winkles desired to borrow funds sufficient to refinance outstanding obligations and to provide additional capital for their business, Winkle Handbag and Fabric Center; because the loan was primarily (even overwhelmingly) for business purposes, the bank was not required to comply with the provisions of the Truth in Lending Act; the instruments should be reformed to describe the intentions and agreement of the parties; and the $22,000 installment note was usurious. Because appellee is a national bank and, therefore, subject to federal regulation, the judgment rendered for appellants was in the amount of [267 Ark. 129] twice the interest they had paid on the $22,000 note. Appellee bank was awarded the balance due on a renewal of the $15,000 note and the remaining principal of the $22,000 note, less interest and the credit life premium.

I

THE CHANCELLOR ERRED IN NOT FINDING THE ENTIRE LOAN TRANSACTION USURIOUS BY EXCLUDING THE $15,000 DEMAND NOTE.

II

THAT THE CHANCELLOR ERRED IN NOT VOIDING THE $22,000 INSTALLMENT NOTE.

III

THE CHANCELLOR ERRED IN FINDING THAT A MUTUAL MISTAKE OF ERROR TOOK PLACE IN THE PREPARATION OF A DEED OF TRUST.

IV

THE CHANCELLOR ERRED IN EXEMPTING THIS LOAN TRANSACTION FROM THE PROTECTION OF THE TRUTH IN LENDING LAW AS TO THE RIGHT OF RESCISSION.

V

THE CHANCELLOR ERRED IN SUSTAINING DEMURRER FOR DAMAGES.

Appellee cross-appeals alleging error on three points:

I

THE CHANCELLOR ERRED IN CONCLUDING THAT THE ACCRUAL OF INTEREST USING THE "RULE OF 78'S" RENDERED THE $22,000 PROMISSORY NOTE USURIOUS.

II

THE CHANCELLOR ERRED IN CONCLUDING THAT THE USE OF THE "RULE OF 78'S" UNDER THE WORDING OF THE PROMISSORY NOTE RENDERED THE NOTE USURIOUS.

III

THE CHANCELLOR ERRED IN FINDING THAT THE COMMISSION EARNED ON THE CREDIT LIFE INSURANCE PREMIUM RENDERED THE NOTE USURIOUS.

We will first treat appellants' arguments and then consider appellee's three points on cross-appeal.

I

Appellants, in their pro se brief, argue that not only the $15,000 promissory note Appellee bank, while protesting that this issue was raised for the first time in appellants' post-trial brief, stated that the policy was not introduced at trial because of an oversight of counsel. The record reveals that the foundation had been laid for the policy's introduction into evidence, but two copies of the policy on the $22,000 note were introduced instead and appellee's attorney had misplaced the document in question. Because the attorney felt that the validity of the policy was not at issue at trial, the oversight was never corrected. Appellee attached the policy to its post-trial brief as an exhibit. Even though more than one month elapsed between the filing of this brief and the filing of the chancellor's findings of fact and law, the chancellor obviously considered the policy without objection from appellants. The chancellor found that the original figures typed on the face of the note had been changed, when the Winkles elected to take credit life insurance, to include the amount of the premium $51.75 and the changes had been initialed by Roger Winkle.

but the whole transaction, was usurious because appellee did not prove at trial that credit life insurance was issued on that note and, therefore, a charge for a credit life insurance premium was actually hidden interest. Appellants also contend that the $15,000 note as renewed on April 13, 1976 is usurious on its face.

Appellants complain that appellee failed to produce this policy in response to a subpoena duces tecum which they had caused to be served upon appellee three months before the trial which was held on October 25, 1977. This subpoena called for appellee to bring all documents regarding the execution of the promissory notes for $22,000 and $15,000 to a hearing to be held on June 28, 1977. Although both parties abstract portions of the record, it is not clear to us whether the hearing was held or its nature, if held. It must have been one of several preliminary hearings, mentioned in appellants' statement of the case, one of which was held on June 29, 1977. There is no indication that the case had been set for trial on either date. We find no indication that the subpoena required production of the policy, or other documents at the trial.

Appellee's attorney claims to have been misled into the belief that appellants were not raising any issue as to the credit life insurance until the question was raised in a post-trial brief filed by appellants. A stipulation was entered into on October 19, 1977, which was a week prior to actual trial, although it appears that this may have been the date on which the trial was originally set, because the parties agreed in the stipulation that the Winkles were entitled to a continuance. That stipulation included the following paragraphs:

2. That the defendants' allegation of usury is evidenced by the computerized statement mailed to them by Systematics, Incorporated, which reflects computation of earned interest for the calendar year 1976.

3. That said defendants specifically waived any other allegations of usury as to the time of making of the promissory notes involved, any demands for payment or any demands made by the pleadings herein.

Appellee and its attorney were certainly justified in believing that the question of credit life insurance was not an issue until appellants asserted in their post-trial brief that the $51.75 was a masked interest charge because no policy was ever issued.

George Lefler, Executive Vice-President of Grand National Bank testified that a credit life insurance policy was issued, the premium added to the $15,000 principal advanced and interest charged on the total amount financed. Lefler also testified that the credit life insurance was issued by an independent insurance company and the policy issued to the Winkles was in the loan file and still in effect at the time of trial. Mrs. Carolyn Phillips, Assistant Vice-President of Grand National Bank, testified that she took the Winkles' application for credit life insurance. At that time, she claims, she gave Mrs. Winkle a form for a physical examination to be returned directly to the insurer by Mrs. Winkle or her doctor. Mrs Appellants also contend that the payments provided for made the note usurious, pointing out that Mike Allen, an accountant called as a witness by the Winkles, testified that he included the credit life insurance premium as principal and calculated the interest allowable on the $15,000 note at 10 percent and found that, considering information statements issued by the bank for the year 1976, there was an overcharge of one cent for that year. He recognized that the statements sent out by the bank were for information purposes mainly to be used by the taxpayer for verification to the Internal Revenue Service as to the amount of interest paid for the year. He also testified that there are untold formulas for computing interest. ...